Warrnambool Cheese expects profit to plunge 80pc

Murray Goulburn chief executive Gary Helou said the company’s increased stake in Warrnambool was a “strategic ­investment” and there was “no current intention to make a takeover offer”.
Photo: Jesse Marlow

Warrnambool Cheese & Butter Factory
has warned its profit will plunge 80 per cent, less than 24 hours after
Murray Goulburn
raided its register in an ambitious move to gain a 19.9 per cent stake in the smaller processor.

Murray Goulburn, the nation’s largest milk processor, paid $5.5 million to lift its stake from 12 per cent to 14.5 per cent, paying a 16 per cent premium to an institutional investor. It said it would buy more shares at $4.60 each until it reached a 19.9 per cent holding.

Bega Cheese
recently increased its stake from 16.1 per cent to 17.1 per cent. It was Warrnambool’s white knight against a hostile takeover by Murray Goulburn three years ago, where, under different management, it was buying shares at $4.50.

“Warrnambool is clearly in play," RBS Morgans analyst Belinda Moore said. “It will be interesting to see which company is successful in acquiring Warrnambool and will there be a bidding war."

In a statement, Murray Goulburn chief executive
Gary Helou
said its increased stake was a “strategic ­investment".

“There is no current intention to make a takeover offer for Warrnambool, nor do we currently intend to seek board representation," Mr Helou said.

Warrnambool’s board is meeting in its namesake town on Friday. Late on Thursday, Warrnambool said its profit would be 80 per cent below last financial year due to soft international milk prices, a high Australian dollar and competition in the raw milk market, which was keeping upward pressure on prices paid to milk suppliers.

Murray Goulburn has been cutting costs as part of a plan to pay farmers more, which is impacting Warrnambool. Mr Helou declined to comment.

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Warrnambool chairman
Frank Davis
said earnings would improve in fiscal 2014 as it benefited from investments and a rebounding international milk price.

“We think we will do better with our assets than anyone else," Mr Davis said.

Bega chairman
Barry Irvin
said its Warrnambool investment was an important long-term holding. Mr Irvin stoked takeover speculation in March by stepping down from the Bega board as the company increased its stake.

Mr Irvin said most of its increased holding was due to a dividend reinvestment plan. He stepped down from the board to devote more time to Bega.Warrnambool shares surged 18 per cent to $4.70 before closing at $4.60, a gain of 15.6 per cent.

More than 2.2 million Warrnambool shares changed hands.

Warrnambool has 55.3 million shares on issue. To reach its objective of 19.9 per cent, Murray Goulburn needs to buy another 3 million shares.

Mr Davis said any animosity toward Murray Goulburn in the wake of its hostile takeover attempt was “long gone", aided by significant management changes that have occurred at its rival.

Speaking to The Australian Financial Review after an agricultural conference in Melbourne on Thursday, Mr Helou said he had no comment to make about the share purchases or the potential for consolidation within the milk industry.

He has previously said the industry needed to rationalise in order to achieve scale and grow in global markets.

Murray Goulburn will take over processing Coles’s private label milk for its Victoria and NSW stores from July 2014, ousting Japanese-owned Lion and striking an unusually lengthy decade-long agreement.